5/29/2008 @ 9:50PM

China's AgFeed Pigs Out

With pig prices soaring in China,
AgFeed
is bulking up its hog production business.

The Chinese feed and pork producer acquired two commercial hog farms in Fujian province. One of the farms is a breeding facility, making it the company’s second.

AgFeed
stock shed 86 cents, or 5.6%, closing Thursday at $14.47.

The company, China’s market leader in pre-mix and hog production, doesnt waste any time. On Tuesday, Agfeed said
Deutsche Bank
was helping it explore growth opportunities (See: China’s AgFeed Porks Up). By Thursday, the company said its management was already operating the newly purchased farms, which are expected to immediately benefit earnings.

“In early 2008, we anticipated rising hog prices throughout the year and we adjusted our hog marketing strategies in our first quarter to benefit from higher hog prices. We are pleased to see the effectiveness of such strategies as we are experiencing both significantly increasing hog sales as well as high hog selling prices,” said
Songyan
Li
Songyan Li
, the company’s chairman. Li added that the recent earthquake has further pressured pork supply and contributed to inflated hog prices.

China’s strained hog supply is due to a combination of a harsh winter that caused widespread piglet deaths, an epidemic of blue ear disease and increasing incomes, which have enabled more people to buy meat. According to AgFeed, 65.0% of China’s total meat consumption is pork.

Global Hunter Securities analyst Ping Luo said in a May 19 report that hog prices have risen to between $240 and $270 per 110 kilograms, from the $200 to $210 range in 2007. She said AgFeed’s hog-raising business produces about 40.0% of its gross margins and more than 25.0% of net margins.

AgFeed said it’s still shopping for commercial hog farms since pig sales are expected to remain robust through 2008.

Including the company’s newest additions, it now owns controlling interest in 24 producing commercial hog farms throughout China with annual hog production capacity of 550,000 hogs.